Kingfly Spirits v. Blake Ragghianti

• Court: Court of Appeals for the Third Circuit
• Decided: June 26, 2024
• Docket: 23-2913
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 23-2913 _____________

KINGFLY SPIRITS, formerly doing business as Port of Pittsburgh Distillery LLC; MARK WILLSON; EBBREZZA, INC., Appellants

v.

BLAKE RAGGHIANTI; DAVID S. KLETT; JUSTINA TUSHAK; DANIELLE RAGGHIANTI; JORG GERLACH, MD, PhD; ECHT LLC; GREGG THRELKELD; MARK ZINI; THE AGING ROOM, LLC; JOHN DOES (1-10); RAGGIANTE, LLC ________________

On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil No. 1:22-cv-00050) District Judge: Honorable Cathy Bissoon ______________

Submitted Under Third Circuit L.A.R. 34.1(a) June 4, 2024 ______________

Before: CHAGARES, Chief Judge, CHUNG and FISHER, Circuit Judges

(Opinion filed: June 26, 2024) ____________

OPINION* ____________

* This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent. CHAGARES, Chief Judge.

This case arises out of a business dispute between plaintiff Mark Willson and his

former partner, defendant Blake Ragghianti. Willson filed this lawsuit along with

plaintiffs Kingfly Spirits, LLC (“Kingfly”) and Ebbrezza, Inc. (“Ebbrezza”), alleging a

variety of state and federal claims against Ragghianti and defendants Danielle Ragghianti

(“Mrs. Ragghianti”), Raggiante, LLC (“Raggiante”), David Klett, Ragghianti’s attorney,

and Justina Tushak, Kingfly’s accountant.1 The District Court held that the plaintiffs

failed to adequately plead any of their federal claims; it then declined to exercise

supplemental jurisdiction over the remaining state-law claims and dismissed the case.

The plaintiffs appeal, arguing that the District Court erred in holding that their federal

claims were inadequately pled. We will affirm.

I.

We write solely for the parties and so recite only the facts necessary to our

disposition.2 Ragghianti organized Kingfly in February 2015, under a different name and

without Willson’s involvement, to market and sell alcoholic beverages and to stage

events such as musical performances and corporate gatherings. Ragghianti sought

investors to fund Kingfly’s operations, and Willson invested through his company

1 The plaintiffs initially filed suit against a number of additional defendants, but the claims against them were terminated prior to the entry of judgment by the District Court, and those defendants have not appeared in this appeal. We will refer to the defendants set forth above as the defendants in this opinion. 2 We draw these facts from the allegations in the operative complaint, and we assume them to be true solely for the purposes of this opinion. Borough of Longport v. Netflix, Inc., 94 F.4th 303, 306-07 (3d Cir. 2024).

2 Ebbrezza in exchange for a fifty percent ownership stake. Willson invested additional

sums in Kingfly over the next few years, after which his ownership of the company

reached eighty-five percent. Ragghianti served as Kingfly’s head distiller, distillery

manager, and bookkeeper during that period, in which capacity he developed and

promoted alcoholic beverages. But throughout his employment at the company,

Ragghianti took raw materials, finished products, and money that in fact belonged to

Kingfly, which he then used for his own private purposes. Furthermore, he pursued

business opportunities with third parties on his own behalf rather than on Kingfly’s

behalf.

In February 2020, Ragghianti told Willson that he would demand an annual salary

of $85,000 as a condition of continuing his employment with Kingfly. Kingfly refused

the demand and instead accepted Ragghianti’s resignation. Ragghianti undermined

Kingfly’s continuing operations, however, by disabling its online presence, including its

website and Facebook page. Kingfly subsequently received the results of an audit

documenting the property that Ragghianti took during his employment with the company,

which he has retained following his departure and used to produce, market, and sell

alcoholic beverages.

Raggiante is a Pennsylvania LLC owned by Ragghianti. Ragghianti used it to

purchase, own, and sell raw materials and finished alcoholic beverages. Mrs. Ragghianti,

Ragghianti’s wife, communicated with him at various points about his business activities,

assisted him in mailing packages, and sought to raise funds with him on gofundme.com

for their legal defense. Tushak provided bookkeeping services to Kingfly at Ragghianti’s

3 direction during his employment there. Following his departure, Tushak invoiced

Kingfly for the services she had provided, although discrepancies existed between the

hours invoiced and the hours that Kingfly’s accounting software recorded her as having

worked. Klett is Ragghianti’s attorney, and collaborated with him on the development,

production, and marketing of alcoholic beverages.

The plaintiffs filed suit on February 11, 2022, then twice amended their

complaint.3 Once amended, the complaint alleged a total of fourteen claims: nine arising

under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.

§ 1962, one arising under the Computer Fraud and Abuse Act of 1986 (“CFAA”), 18

U.S.C. § 1030, one under the Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C.

§ 1836, and three under Pennsylvania law.4 The District Court granted the defendants’

motions to dismiss on September 25, 2023, holding that the federal claims were

inadequately pled and declining to exercise supplemental jurisdiction over the state-law

claims. The plaintiffs timely appealed.

II.5

We will separately analyze the three types of federal claims brought in the

complaint — the RICO claims, the CFAA claim, and the trade secrets claim — and

3 We will refer to the second amended complaint simply as the complaint. 4 While the claim for “Aiding and Abetting Computer Fraud and Related Activity,” App. 105, might appear also to arise under the CFAA, the plaintiffs in fact bring it under Pennsylvania law, see Plaintiffs’ Brief 20 n.9. 5 The District Court had jurisdiction under 28 U.S.C. § 1332, and we have jurisdiction under 28 U.S.C. § 1291. We review de novo a district court’s decision to grant a motion to dismiss. Borough of Longport, 94 F.4th at 306.

4 conclude that each was pled inadequately. The District Court’s dismissal of the

plaintiffs’ state-law claims was predicated on its dismissal of their federal claims, and the

plaintiffs do not argue that the District Court independently erred in declining to exercise

supplemental jurisdiction over the state-law claims once the federal claims were

dismissed. Our conclusion that the dismissal of the plaintiffs’ federal claims must be

affirmed will thus automatically require that we affirm the dismissal of their state-law

claims, as well.

A.

Each of the four subsections of 18 U.S.C. § 1962 defines a distinct violation of

federal law, and the complaint alleges each type of violation. Subsections (a), (b), and (c)

each define “substantive” RICO violations, which differ in certain respects but also share

certain prerequisites, including the existence of a RICO enterprise. Lightning Lube, Inc.

v. Witco Corp., 4 F.3d 1153, 1188 (3d Cir. 1993) (subsection (a)); id. at 1190 (subsection

(b)); In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 362 (3d Cir. 2010) (subsection

(c)). The plaintiffs claim that the complaint pleaded the existence of an association-in-

fact enterprise, a “union or group of individuals associated in fact although not a legal

entity.” 18 U.S.C. § 1961(4).6 And the Supreme Court has held “that the RICO statute

defines an ‘enterprise’ broadly.” Ins. Brokerage Litig., 618 F.3d at 368. But that breadth

is not without limit. “[A] RICO claim must plead facts plausibly implying the existence

6 As the plaintiffs argue before this Court only that an association-in-fact enterprise existed, see Plaintiffs’ Brief 7, we do not consider whether the complaint might adequately plead a RICO claim predicated on the existence of an enterprise of some other type.

5 of an enterprise with the structural attributes identified in Boyle: a shared ‘purpose,

relationships among those associated with the enterprise, and longevity sufficient to

permit these associates to pursue the enterprise’s purpose.’” Id. at 369-70 (quoting Boyle

v. United States, 556 U.S. 938, 946 (2009)). The District Court held that the allegations

in the complaint failed to justify the plausible inference that such an enterprise existed.

We agree.

Although the plaintiffs insist at length that the District Court evaluated the

complaint using too stringent a standard, their briefing does not attempt the threshold task

of identifying the structural attributes possessed by the enterprise asserted in this case.

See Boyle, 556 U.S. at 946. The plaintiffs do not name the alleged common purpose that

animated the association’s members, explain how the alleged relationships among them

allowed them to advance that purpose, or specify the period of time, sufficient to achieve

that purpose, during which the association allegedly existed. Instead, their brief sets forth

only a pattern of racketeering activity: it identifies “who the actors were, what predicate

acts each actor was responsible for, the times Appellants believed those predicates acts

occurred, how they each acted in moving the Scheme forward, and how they were all

interrelated.” Plaintiffs’ Brief 15. To be sure, in a particular case “a pattern of

racketeering activity may be sufficient . . . to infer the existence of an association-in-fact

enterprise.” Boyle, 556 U.S. at 951. But “one does not necessarily establish the other.”

Id. at 947 (quoting United States v. Turkette, 452 U.S. 576, 583 (1981)). Though the

complaint may allege that Ragghianti engaged in a series of unlawful acts, aided at

certain points by other of the defendants, absent the structural attributes identified in

6 Boyle, those allegations establish neither “an ongoing organization, formal or informal,”

nor that “the various associates function[ed] as a continuing unit.” Id. at 945 (quoting

Turkette, 452 U.S. at 583). And because those allegations do not plausibly support the

inference that there existed “a continuing unit that function[ed] with a common purpose,”

id. at 948, they fail to state a claim for a substantive RICO violation.

Because “a conspiracy may exist and be punished whether or not the substantive

crime ensues,” Salinas v. United States, 522 U.S. 52, 65 (1997), a complaint need not

plead that a substantive RICO violation occurred to state a claim for RICO conspiracy in

violation of 18 U.S.C. § 1962(d). But a section 1962(d) violation requires “a conspiracy

to violate RICO.” Zavala v. Wal-Mart Stores Inc., 691 F.3d 527, 539 (3d Cir. 2012).

Thus, though a RICO conspiracy may occur even without a consummated substantive

RICO violation, a complaint still must “allege adequately an endeavor which, if

completed, would satisfy all of the elements of a substantive RICO offense.” Ins.

Brokerage Litig., 618 F.3d at 383 (quotation marks and brackets omitted). In the absence

of any alleged RICO enterprise, as we have explained, the actions alleged in the

complaint did not amount to a substantive RICO violation. And the complaint does not

allege that the defendants conspired to engage in any additional conduct that would have

constituted a substantive RICO violation, had it been consummated. Because the

complaint did not “allege adequately an endeavor which, if completed, would satisfy all

of the elements of a substantive RICO offense,” id., it fails to state a claim for a RICO

conspiracy.

7 B.

The CFAA generally prohibits unauthorized computer access. 18 U.S.C.

§ 1030(a). It further permits “[a]ny person who suffers damage or loss by reason of a

violation of this section [to] maintain a civil action against the violator to obtain

compensatory damages and injunctive relief or other equitable relief.” Id. § 1030(g). But

such an action “may be brought only if the conduct involves 1 of the factors set forth in

subclauses (I), (II), (III), (IV), or (V) of subsection (c)(4)(A)(i).” Id. Each of those

factors, in turn, involves a particular type of harm caused by the defendant’s unlawful

conduct: a loss of at least $5,000, id. § 1030(c)(4)(A)(i)(I), an effect on the provision of

medical services, id. § 1030(c)(4)(A)(i)(II), a physical injury, id. § 1030(c)(4)(A)(i)(III),

a threat to public health or safety, id. § 1030(c)(4)(A)(i)(IV), or damage to a federal

government computer used in the administration of justice, national defense, or national

security, id. § 1030(c)(4)(A)(i)(V).

The District Court concluded that the complaint failed to state a claim for a

violation of the CFAA because it did not plausibly allege that the defendants’

unauthorized computer access caused any of those types of harm. We agree. Plainly, the

allegations in the complaint are wholly unrelated to medical care, physical injury, public

health and safety, or computers owned by the federal government. And while the

complaint certainly alleges a loss of greater than $5,000, the only damages it identifies

consist of the value of property that Ragghianti allegedly stole from Kingfly and the

profits lost when that property could no longer be sold by Kingfly. App. 93-94. But the

CFAA requires that each enumerated harm be caused by the conduct that violated the

8 CFAA. 18 U.S.C. § 1030(4)(A)(i) (providing that each factor applies “if the offense

caused” the relevant harm). And while it is conceivable that some unauthorized

computer access alleged in the complaint may have causally contributed to the taking of

Kingfly’s property, the plaintiffs have identified no factual allegations capable of nudging

that proposition “across the line from conceivable to plausible.” Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007). Having failed to plausibly allege that the

defendants’ alleged conduct caused any harm set forth in subclauses (I) through (V) of 18

U.S.C. § 1030(c)(4)(A)(i), the complaint thus fails to state a claim under the CFAA.

C.

“An owner of a trade secret that is misappropriated may bring a civil action under

[the DTSA].” 18 U.S.C. § 1836(b)(1). To state a claim for trade secret misappropriation,

a complaint must allege, among other elements, the existence of a trade secret. Oakwood

Lab’ys LLC v. Thanoo, 999 F.3d 892, 905 (3d Cir. 2021). And “to plead the existence of

a trade secret in a misappropriation claim brought under the DTSA,” a complaint must

“allege facts supporting the assertion that the information [claimed as a trade secret] is

indeed protectable as such.” Id. To be protectable as a trade secret, in turn, information

must “derive[] independent economic value . . . from not being generally known.” 18

U.S.C. § 1839(3)(B). The District Court held that the “[p]laintiffs’ passing references to

trade secrets” were insufficient to meet this standard. App. 7 n.8. We agree. The

complaint specifically identifies only two types of information alleged to constitute trade

secrets — the recipes and labels for a brand of rum developed by Ragghianti. Id. at 50,

106. But it does not allege that either the recipes or the labels derived independent

9 economic value from not being generally known, nor does it allege any facts from which

that claim might plausibly be inferred. And absent allegations supporting the claim that

the recipes or labels were protectable as trade secrets, the complaint fails to plead the

existence of a trade secret and thus fails to state a claim for misappropriation under the

DTSA.

III.

For the foregoing reasons, we will affirm the Judgment Order of the District

Court.